5 Trends That Are Shaping The Future of Loyalty

1. Predictive Analytics

Proactive retention strategies that are already employed by brands are going to be heavily influenced by advances in predictive analytics. Vast amounts of customer data have already been harvested by brands and AI algorithms can learn consumer behavior by identifying patterns therein. Overarching trends and behaviors that indicate potential next purchases will become clearer and will soon be easily accessible to loyalty managers who will leverage these insights to send targeted offers, personalized communications, or individualized loyalty rewards. This will help with retention, and the inverse is also true: Predictive Analytics can flesh out churn risks by identifying behavioral patterns that lead to disengagement and customer drop-off. Mitigating this is always critical for brands, and AI will enable this to be done much more efficiently.

2. Recommendation Engines

While brands already use recommendation engines to increase customer engagement, this will be vastly improved with AI. The current approach to recommendation relies on collaborative filtering techniques that are primarily behavior-based. In this approach, behavioral data such as ratings, reviews, viewed items, adding to cart, or customer purchase history, is analyzed and compared in order to find similarities between customers. But AI will improve collaborative filtering by enabling much more sophisticated analysis of user behavior. For example, deep learning and natural language processing algorithms can recognize highly complex patterns and even understand customer sentiment. Other contextual information around the behavior itself can also be quickly learned and understood, including demographic information, temporal data (i.e., seasonality or time of day), the customer's social connections, and other related information. This will result in more precise recommendations and higher levels of customer engagement within loyalty programs.

3. Fee-Based or Subscription Loyalty

While not everyone considers subscriptions to be loyalty programs by definition, they essentially operate as such. For a recurring fee, subscribers are often rewarded with a personalized experience. This can include curated recommendations that help you save time as well as early access to new products, sale events, and promotions. Member satisfaction is highest for loyalty programs that require a fee, and the penetration and growth of paid and subscription-based programs are on the rise.

4. Environmental, Social and Governance (ESG) Based Loyalty

According to 5W PR's 2022 Consumer Culture Report, the vast majority of millennials (83%) say it's important for them that companies align with their beliefs and values. The same report also highlights that 76% of consumers say they would not continue engaging with companies that treat employees, communities, and the environment poorly. This trend has continued since it got attention in a 2020 report by First Insight. That report indicated that 73% of Gen Z consumers surveyed were influenced by a company's ESG efforts, even going as far as to say that they would pay more for items that they considered to be sustainable. ESG now plays a direct role in purchase decisions and is increasingly front-of-mind for consumers.

To gain the trust and loyalty of Millennial and Gen Z consumers, brands need to stand for something greater than overt consumerism and begin to focus on leaving a positive footprint on the world in which they operate. Since loyalty programs are a key pillar of a robust marketing strategy, the mechanics of the program need to support a company's ESG initiatives.

The ability for loyalty members to donate points to a charity of their choice is a commendable effort made by brands like Marriott, Best Western, DSW, Kroger, and Stop & Shop. But brands should look to go above and beyond. They should seek to galvanize a community of like-minded individuals toward achieving a common goal.

5. Informal Loyalty

With the proliferation of AI, personalized recommendation engines, and generative technologies, brands may be walking away from having formal, declared, and overt loyalty program structures. These innovations and technologies enable brands to create completely personalized one-to-one loyalty experiences with individual rewards and benefits delivered as surprises and delights. As consumers begin to appreciate the personalization and high-touch afforded by this construct, brands may shift their focus away from branded programs supported by bloated marketing budgets. Instead, those marketing dollars will shift to technologies that enable the consumer to receive a tailored experience. In effect, instead of the consumer belonging to the loyalty program, the loyalty program will belong to the consumer.

Lia Grimberg is the Principal and Consultant at Radicle Loyalty. Based in Canada, Radically Loyalty provides consulting services to brands that are looking to build long lasting relationships with their customers. She can be reached on LinkedIn.